Venezuela Public Corruption and Fraud: More Whistleblowers Needed

Hugo Chavez, former Venezuelan strongman, rose to power after the public became fed up with decades of corruption. Instead of improving things, many say the public corruption got worse.

Chavez’ life was cut short by cancer. He died in 2012. Prior to his death, however, Chavez radically changed how business operates in Venezuela. His actions, whether well intended or not, resulted in widespread public corruption and fraud.

This year his successor, President Nicolas Maduro, passed a sweeping anti-corruption reform package but public corruption and fraud are now entrenched within Venezuelan government. In fact, things are so bad that transparency.org rates the country as the 15th most corrupt in the world. In the Americas, only Haiti has a worse ranking and most companies steer clear of Haiti unless they absolutely must do business there. (The Economist magazine put Venezuela as the 8th worst and even below Haiti and Zimbabwe!)

Overview of Public Corruption in Venezuela

Chavez was the head of the PSUV, the Socialist Party of Venezuela. Under his watch, many industry sectors were nationalized. Oil, electricity, communications, even much of the food industry, was largely expropriated by the government. Suddenly there were tens of thousands of additional government officials. There can’t be “public bribery” without public officials and Chavez created legions of new officials.

The Venezuelan oil giant, PDVSA, is probably the most scandal rocked public company in the country. And it does business with thousands of contractors, vendors and licensees. (Some estimates say that PDVSA has lost $11 billion to fraud.)

Adding to the problem are the country’s currency controls. The local currency doesn’t buy much and taking money out of the country is illegal. Of course, a ready black market opened to smooth the way for corrupt officials who want to get their money out of Venezuela.

The country has also become much more violent. Kidnappings and homicides are off the charts. When Chavez took power the murder rate was less than 20 per 100,000 people. Now it hovers around 100!

Business Between a Rock and a Hard Place

No legitimate business wants to pay bribes and offer kickbacks but doing business in Venezuela without offering bribes can be difficult. Fail to pay off a key official and you could find your business closed or permits denied. Many would-be whistleblowers are afraid of reprisals and physical violence.

With so many public officials, rampant inflation, shortages of essential goods, currency controls and crime, President Maduro has his work cut out. Meanwhile, the country’s public corruption and fraud problems are virtually unchecked.

The Foreign Corrupt Practices Act

The US Congress passed the Foreign Corrupt Practices Act (FCPA) to help stop public corruption and fraud worldwide. Any payment or item of value to a government official in exchange for a business benefit is illegal. Violations are both criminal and civil. We aren’t the only country with foreign corruption measures, although the United States is one of the most aggressive.

Bribe a Venezuelan official, and you could go to jail in the United States.

How is that possible? The U.S. law extends to any conduct which may have taken place in the United States or involves American companies.

That means that a bribe that is paid to an official in Venezuela can be prosecuted here if the wire was sent through a U.S. correspondent bank or an email in furtherance of the scheme was sent from the U.S.

If a U.S. company hires a consultant to pay the bribe, the matter can also be prosecuted here even if all the dirty work took place on foreign soil.

And both foreign and domestic companies are subject to the U.S. law if they sell stock or ADR’s on an American stock exchange.

The FCPA has a myriad of very complex jurisdictional rules. For purposes of this post, remember that Congress drafted the law very broadly with an eye to reaching as many bribery schemes as possible.

US Anti Retaliation Protections for Foreign FCPA Whistleblowers

With Venezuela being such a dangerous place, why would any whistleblower come forward? Good question!

The FCPA is jointly enforced by the American Securities and Exchange Commission (SEC) and the Department of Justice. For whistleblowers in the U.S., the SEC offers potent anti-retaliation tools and will frequently enter a case on its own to protect a whistleblower.

The best protection, however, may be your anonymity. The SEC has a long and successful history of protecting the identities of its whistleblowers.

Whistleblower Awards for Public Corruption and Fraud

Most whistleblowers are motivated by the knowledge that they are doing the right thing. Knowing that it is often hard to stand up to one’s employer, however, the SEC Whistleblower Program allows the government to pay an award of between 10% and 30% of whatever the government collects from wrongdoers. If the government collects $10 million from the wrongdoer, the whistleblower can receive between $1 million and $3 million in U.S. dollars.

Average fines and penalties in FCPA cases have been in the millions of dollars meaning the potential awards are also huge.

Collecting an Award under the FCPA and SEC Whistleblower Program

To qualify for an award, one first must possess information about bribery of a foreign official. In foreign countries, it is not unusual to have doctors and hospitals being employed by the government. That makes them “foreign officials” within the definition of the law. In Venezuela, many industry officials are considered public officials because the companies are owned by the state,

The whistleblower should also be an original source of that information. That means hearsay or “a friend of a friend said…” type information won’t work.

Not a U.S. citizen? Don’t worry. SEC FCPA whistleblower awards are available regardless of residency, citizenship or resident alien status.

Not All Bribes Are Monetary

Bigger companies are smart enough to know that paying kickbacks or bribes by wire transfer, check can leave a messy trail. We have all watched movies where the criminal wants money wired to his secret Swiss bank account. That works in movies but wires leave a trail and large cash withdrawals trigger suspicious activity reports in the U.S.

For these reasons, companies often use a third party consultant or intermediary to pay the bribe or kickback. That “consultant” has no real duties, of course, but auditors don’t necessarily know that. They see money being paid to a consultant, not a bribe to a foreign official.

Another way of concealing public corruption and fraud is by making payment with services and favors. A trip to a Hawaii could be a legitimate business expense or could be meant as a payoff to a foreign official who okayed a building permit.

In one recent case, a U.S. company gave paid internships and cushy jobs to the adult kids of foreign officials. If the kids are qualified, it might not be illegal. Often, however, the jobs are simply no show, no responsibility positions with ridiculous salaries.

Active Foreign Bribery Investigation – PDVSA

Petróleos de Venezuela, S.A. (PDVSA) is the Venezuelan state-owned oil and natural gas company. With over $100 billion in revenues, it spends a tremendous amount of money and controls millions of barrels of oil.

The resources and energy sectors are hotbeds of public corruption and fraud activity and PDVSA is no exception. We believe that dozens of companies have paid or offered bribes to managers and others at PDVSA. Because the company is publicly owned, any such bribery attempt is probably an FCPA violation. (Meaning the possibility of an SEC whistleblower award).

Already, prosecutors in Texas and Washington DC have indicted 8 people and companies for public corruption connected to PDVSA.

Last year, the Huffington Post did an investigative journalism piece on Unaoil. Although not a Venezuelan company, certain parallels can be made. According to the article, Unaoil acted as a third party to help big American companies such as Halliburton, Honeywell, KBR and FMC Technologies; Korean manufacturers Samsung and Hyundai; U.K.-based Rolls-Royce; and Germany-based Man Turbo win contracts. Companies like Halliburton and KBR have been investigated outside of Unaoil for other FCPA foreign bribery schemes.

Could all these companies also be paying bribes to PDVSA? Who knows?

From Venezuela to Brazil

A recent case involving Brazilian oil producer Petrobas had two foreign companies facing charges in the U.S. for their role in a FCPA scheme. Brazilian construction firm Odebrecht SA and petrochemical company Braskem SA admitted to U.S. Foreign Corrupt Practices Act charges. The charges were part of a $3 billion deal resolving a sweeping corruption probe of the state owned oil company.

In our experience, companies that pay bribes in one country often do it in others. As noted above, the oil and natural resources industries seem especially prone to public corruption and fraud.

Active Public Corruption Investigation – Ferrominera

C.V.G. Ferrominera Orinoco C.A. is the Venezuelan state owned iron ore mining company. An investigation started by President Maduro suggested that over $1.2 billion of iron ore was sold at bargain basement prices in return for kickbacks. According to the Economist, the government admitted that there was more corruption than had even been made public.

How much corruption? We may never know. The special prosecutor sent to investigate the scandal was himself arrested after allegedly blackmailing the very managers he was sent to investigate.

Ferrominera exports much of its ore to the U.S. and buys much of its mining equipment from U.S. suppliers.

Corruption Hurts Venezuelans and the Business Community

Legitimate companies can’t compete with companies that pay illegal bribes and kickbacks. These dishonest companies get a competitive advantage that other companies don’t. The goal of the FCPA is to level the playing field so that honest companies have a chance to create jobs and grow the economy.

It isn’t just the business community that suffers from public corruption and fraud, however. In the final analysis, everyone but the wrongdoers suffer. Goods and services cost more because so much money is lost to fraud.

In the case of Venezuela, things are so bad that grocery store shelves are often bare. A Congressional commission says that $70 billion is missing from public companies including PDVSA. The Wall Street Journal says that many public hospitals are going without medicine. In fact, the infant mortality rate in Venezuela is now worse than war ravaged Syria!

US Lawmakers Call for Crackdown on Venezuelan Foreign Bribery and Corruption

The U.S. and Venezuela have not exchanged ambassadors since 2010. Relations between the two countries remain tense. This month a bipartisan group of 34 lawmakers have called on President Trump to sanction those who offer, solicit or accept bribes.

Why? The 34 Congressmen and women say the country is responsible for human rights abuses and that corruption is spiraling out of control. There is also a suspected link between the country’s new vice president and both drug cartels and terror groups.

The lawmakers wrote to Trump asking that he take immediate action. Their letter said, “Decisive, principled action in response to unfolding developments in Venezuela as one of the first foreign policy actions of your administration would send a powerful message to the Maduro regime and the Venezuelan people.” The letter was authored by Rep. Ileana Ros-Lehtinen (R-Florida), the former chair of the house Committee on Foreign Affairs and Senator Robert Menendez (D-New Jersey), the ranking member of the foreign relations subcommittee that oversees Latin American affairs. (Ironically, Menendez is himself under indictment. Unfortunately, corruption doesn’t recognize lines drawn on a map and can be found everywhere.)

Call for Whistleblowers

Venezuela urgently needs whistleblowers. Never has the need been greater. American companies that pay bribes or offer kickbacks are only making the problem worse. While the corrupt public officials get fatter, some folks are going without food.

If you are a Venezuelan government official with information about bribes or corruption, contact us. We can help you collect an award and remain anonymous.

If you work for a foreign or American company actively bribing or that recently bribed Venezuelan officials or engaged in other types of illegal influence peddling, chances are you may also be eligible for a whistleblower award.

It doesn’t matter if you are in the U.S. Venezuela or elsewhere. Foreign bribery is illegal in most countries. Unlike most other anti-corruption laws, however, the U.S. SEC Whistleblower Program offers cash awards and anonymity.

MahanyLaw – America’s FCPA Foreign Bribery Whistleblower Lawyers

The FCPA whistleblower lawyers at MahanyLaw have helped our whistleblower clients collect over $100 million in awards. Unlike many other law firms who handle whistleblower cases as an afterthought, we concentrate in these cases. It is what drives us each day.

There will always be corruption in the world. But with the right legal team at your side, you can help level the playing field and achieve justice. That is why we have teamed up with former SEC enforcement lawyers in all our FCPA cases.

Our founder, Brian Mahany, is a former prosecutor and law enforcement officer. We bring together decades of unique experience you won’t find at any other law firm.

For a confidential consultation, contact attorney Brian Mahany at *protected email* or by phone at US 414-704-6731. Callers are reminded to never call from a work phone, work computer or using a work email address.

English not your primary language? We have Spanish speakers available.

Disclosures

[A note on the companies mentioned in this post. Media sources have identified Halliburton, KBR, FMC Technologies, PDVSA, C.V.G. Ferrominera Orinoco C.A, Unaoil, Petrobas, Honeywell, Samsung, Hyundai Man Turbo and Rolls Royce as having links to Foreign Corrupt Practices Act violations, public corruption or using consultants to secure contracts. We quoted or relied on these media sources in producing this post. All companies are innocent until and unless charged and convicted in a court.]